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By constantly filling an exchange’s orderbook with buy and sell orders at stable prices, market markers like Kairon Labs ensure there’s sufficient liquidity available in the market for everyone to trade instantly with minimal price impact.
The Need For Market Makers
Market makers in crypto attempt to create healthy markets with a constant, but not overwhelming, flow of buy and sell orders, providing just enough liquidity to support trading activities without artificially inflating trade volumes.
In providing this flow of liquidity, market makers provide an incentive for others to trade, allowing them to strike while the iron is hot and capitalize on the natural fluctuations in crypto asset prices.
The challenge for market makers is to ensure there’s just enough liquidity to match the asset’s organic volume. If they fail to do this, it can create the impression of much higher trading volumes, which can have the effect of artificially boosting the asset’s price. While that may be the goal of scammers, for crypto projects with legitimate goals and tools, such pumps and dumps are to be avoided at all costs to protect their users and create trust in their investors.
 
Optimizing Liquidity
For this reason, it’s important to secure the backing of an ethical market maker that works to optimize liquidity instead of inflating it, so the market can support the underlying asset’s organic trading volume.
Market makers therefore play a vital role in token adoption. By emphasizing organic volume growth over deceptive practices like wash trading, they can help to support the long-term price stability and growth of crypto assets, boosting the credibility of the project it’s associated with. That’s why professional market makers like Kairon Labs see themselves as partners to the projects they work with, tasked with building a solid foundation for their economic growth.
Mitigating Arbitrage
As part of this, market makers need to take care to mitigate what’s known as arbitrage, which is where traders attempt to buy an asset on one exchange, where it’s cheaper, so they can sell it on a second marketplace, where it’s more expensive. The idea is to profit from the price difference, but such activities can harm crypto projects.
A crypto asset that’s constantly subject to arbitrage can earn a reputation for being unstable and risky. The price instability will have a negative impact on investor confidence, making it difficult for the token issuer to maintain its reputation and price stability.
Market makers can help to mitigate this by continuously placing orders to buy and sell an asset across different exchange platforms, working to reduce any price discrepancy and minimize the prospects for traders to exploit arbitrage opportunities. At the same time, this will optimize liquidity across multiple venues, enabling them to better absorb unusually large orders without any significant price impact.
Growing Token Adoption
Perhaps the most vital role of market makers is in supporting the launch of new tokens to boost their adoption in a natural way. Through its token launch services, Kairon Labs aims to help projects achieve three primary objectives that are essential for new digital assets to establish themselves.
The first objective is to achieve stability. Cryptocurrency markets are known for their volatility, but this reputation masks the fact that the most successful assets are still able to obtain a degree of stability. For instance, while Bitcoin’s price can easily swing by 10% or more on any given day, it has become stable enough that 50% price drops overnight have become a thing of the past.
Crypto traders favor assets that have a certain amount of stability, and to do this the market maker must provide sufficient liquidity to enable the asset to find its fair price organically, as determined by natural supply and demand forces. By reducing the bid-ask spread, market makers can stabilize the price of new assets.
The second objective is trust. When market makers improve liquidity in an underlying asset, they help to increase its organic trading volume, elevating the reputation of the project and cementing its legitimacy and market position. Growth in liquidity is strongly correlated to market position and trust, increasing confidence in the underlying asset and helping it to achieve its long-term goals.
Finally, Kairon Labs works to ensure market performance. Its clients, the token issuers, are not economists but developers, and their job should be to focus on the project’s aims rather than worry about market dynamics. By partnering with Kairon Labs, developers get expert assistance in refining the tokenomics of their native assets to ensure stability and long-term growth.
The Exchange Factor
Market makers don’t just work with token issuers, they can also be brought in by crypto exchanges to maintain liquidity and stable prices on their trading venues, offering them incentives such as fee rebates. Both parties benefit from this kind of relationship, with the exchange boosting its trading volume organically and increasing the efficiency of its market, while the market maker is able to trade more confidently, with much greater capital efficiency.
For token issuers, these kinds of relationships can be beneficial, as it means exchanges have more confidence about listing new assets, allowing them to tap into new markets of crypto buyers.
Securing Crypto Markets
Market makers have emerged as the backbone of crypto markets, providing the liquidity they need to enable efficient price discovery, but doing this is not an easy task. The challenge for market makers is to get the right combination of strategy and technology and establish robust risk management practices to protect themselves from crypto volatility.
Kairon Labs, with its proprietary automated trading software and its customized strategies for each client, has mastered the art of bid-ask spread management and inventory control, enabling it to overcome even the wildest swings in crypto markets and stabilize asset markets through thick and thin.
Source: https://zycrypto.com/crypto-market-makers-the-invisible-force-holding-up-digital-asset-markets/